Monday, August 28, 2006

Complacency, Arrogance, and Greed

Rich Teerlink, the former CEO of Harley Davidson, has pointed out that it’s not competitors that damage organizations, it’s “complacency, arrogance, or greed.” I think he’s right on target. First of all, competition is inevitable in today’s global free-markets. You can’t escape it. Yet even when it’s fierce, any forward-looking and well-led company can succeed. Just think about where you shop: There’s Wal-Mart, Costco, Target, Nordstrom, Zara, Saks, Victoria’s Secret, Dollar Stores, Bed Bath and Beyond, and on and on. Each with a different business model, many serving different market niches—all successful despite ruthless competition in their industry. Competition per se doesn’t kill organizations .

Like Teerlink, I think the real culprits are complacency, arrogance, and greed. Consider:

First, Complacency: the notion of “why fix it if it ain’t broke?” Buddy, it’s broke, or it’s in the process of breaking. Today’s good numbers ought to be celebrated, but remember they’re a scorecard of yesterday’s decisions. If your numbers are good today, that means you were both smart enough and lucky enough to have made some good decisions yesterday. But assuming “why fix it?” under these conditions is akin to assuming that tomorrow’s conditions will be the same as yesterday’s. They won’t even be the same as today’s.

Next, Arrogance: the smug notion that hey, we’re big and we’re powerful, ergo we’re invincible. No such luck. Nobody is safe today, regardless of one’s size and press clippings. In today’s marketplace, it’s intangibles like speed, innovation, responsiveness, and agility that make the difference. That's why countless large corporations have, like dinosaurs, become extinct over the past 20 years. (Of the list of 1980 Fortune 500 companies, more than 50% no longer exist; and many that do exist sometimes appear to be nearing life-support, witness GM, US Airways, and Kodak).

Arrogance locks companies and leaders into protecting their decaying products and technologies, subsidizing internal processes and systems that are becoming irrelevant or obsolete, and unwilling to show genuine humility to the forces of the marketplace that demand disruptive change.

Finally, Greed: the dysfunctional obsession with more, more, and more. When companies are greedy, they swallow up other organizations in a serial acquisition orgy primarily so the CEO can state that “his” (it’s usually a he) company is the biggest, or that his company can provide everything (beware the “one stop shopping” fantasy; customers don’t cooperate with that vision and it’s impossible for any vendor to do everything great). Greedy companies often become fat; their decisions often become dumb, ergo the “fat, dumb, happy” syndrome. Of course, greedy companies are run by greedy leaders. When leaders are greedy, their decisions are based mainly on what will make them look better, or personally wealthier. Decisions are based primarily on self-aggrandizement, not on what will make the company stronger and more vibrant in the future.

Competitors shouldn’t be ignored. They need to be monitored and tracked. They need to be fought, too. But as leaders, remember that, ultimately, it’s not competitors who will do us in. Complacency, arrogance or greed will.

Thursday, August 24, 2006

Ruminations from Abroad

My family and I just got back from a couple weeks’ holiday in London and Ireland. Here are a few random musings:

1. If you’ve never visited Ireland, go. It’s an absolutely lovely country filled with friendly, just plain nice folks. You’ll also be impressed with the huge impact that Ireland has had on the U.S.; some of the most common surnames and prominent American historical figures spring from Ireland.
2. Ireland is the fastest growing economy in the European Union. Here’s why: It lowered taxes, thus spurring foreign investment and home-grown entrepreurship. It embraced globalization, freely employing talent, technology and partnerships from other European members and from other sectors of the planet. It upped the investment in education, and now the ratio of highly educated young people to retiring pensioners is a healthy one. Maybe there are some clues here for nations and for individual companies.
3. London is, as always, a fabulous city to visit. Unfortunately, after a lovely visit, my family happened to be in Heathrow airport one day after the dramatic terrorist arrests. Not a place you want to be. Controlled but mass chaos. When we flew to Dublin from London that day, the only things we could take on board were our travel documents, wallets and prescribed medicines. Everything else had to be checked in. A couple weeks later, we flew back home via Frankfurt Germany. Less draconian than Heathrow, but still, long queues, no liquids, no gels-- and a handsearch through every carryon item and a thorough screening/frisking of each passenger’s body.

So here’s my politically incorrect thought as I saw my 9 year old son and my 80 year old mother go through this lengthy process. Statistically, the overwhelming majority of Muslims aren’t terrorists, but thus far, 100% of the terrorists or would-be terrorists have been young Muslim men. Doesn’t disciplined scientific profiling-- as simply one proactive police tool in a surveillance toolbox-- become a reasonable, sane response to these data? Conversely, are we all prepared to endure steadily increasing hardship and anxieties at airports, and a resultant weakening of industries and economies, because we don’t want to confront hard data, because we don’t want to offend anyone? And by the way, good police work is a must (kudos to Scotland Yard), but each time we add another “no-no” to our list of terrorist possibilities (box cutters, shoe heels, liquids, etc.), we’re reacting to a prior event while the bad guys move on to the next big thing. If we continue with the irrational premise that everyone in an airport is equally likely to cause mass destruction, then, logically, we’ll eventually reach the point that the only people who’ll fly are one of two types: those who have multiple hours to enjoy in airport queues, or, those who bring no luggage and are willing to sit in a plane in their underwear. Neither scenario is particularly attractive.

Wednesday, August 16, 2006

Doing Well by Doing Good

Yes, indeed, it is possible to do financially well by doing something virtuous and good—and truly innovative. My former research assistant Kyra Peyton (who recently graduated MBA with honors) brought this combination aw-shucks/entrepreneurial genius story to my attention.

Are you familiar with GrameenPhone? After you read this piece, I know you’re going to want to google it. GrameenPhone is Bangladesh’s leading provider of GSM cellular services. It is owned 38%-62% by the country’s Grameen Telecom and by Norway’s Telenor AS. The company provides affordable telecommunications to millions of Bangladeshis at the lower base of the economic pyramid, enabling them to lift themselves out of abject $2-a-day poverty by starting self-sustaining micro-businesses as village phone operators.

Yes, you read that right. Through its innovative “Village Phones” program, GrameenPhone partners with GrameenBank to generate micro-loans and cell phones as tools to combat poverty. Here’s how it works:

Before GrameenPhone, many Bangladeshis had extremely limited access to capital and telecom services, and no skills or means to live beyond subsistence farming. Now, some of the country’s poorest citizens are able to secure a micro-loan from GrameenBank, use the capital to start a small business as a village phone operator with a Grameen cell phone, and earn a living wage—while opening up telecommunications to people (also through Grameen bank loans) who never imagined they’d have the opportunity.

Are you aware that 75% of the world’s population earns less than $2,000 annually? That’s 4.5 billion people. Are you aware that nearly that same number do not have direct immediate access to a telephone? GrameenPhone recognized a huge opportunity in this vast untapped segment. Unlike most businesses that succumb to the lure of the up-market (which is usually swamped with competitors), GrameenPhone moved down-market and now dominates a hitherto incumbent-free market that it created.

Again, this is not just a feel-good story. Grameen is not a charity. In 2004, net earnings increased 59% and the company has more than doubled its total number of subscribers to nearly 2.5 million, while providing telecom access to a market space representing 60 million people in rural Bangladesh . It turns out that seemingly destitute people want the service, they’re willing to find a way to pay for it, and lo and behold, they pay their bills and repay their loans. GrameenPhone’s strategy has caught the attention of Nokia. In November 2005, Nokia and GrameenPhone announced a partnership to launch the Village Phones program in Uganda and Rwanda.

Bless them. Tragically, global poverty is a huge market niche. But I’m glad to see that some companies are doing their shareholders well by doing their painfully poor customers some good.

Wednesday, August 09, 2006

If You’re Serious About Change, Maybe You Oughta Move

"If You’re Serious About Change, Maybe You Oughta Move" by Oren Harari. August 9, 2006

Here’s a little note about “change”. Are you ready for something that goes beyond lip service and micro-incremental adjustments to your current processes and culture? Well, here it is: If you’re leading a company that’s in dire need for serious, big-time change, then consider moving headquarters to another state.

That’s what Carlos Ghosn is doing to shake up Nissan U.S.A. He shut down the company’s U.S. headquarters in Los Angeles and moved it to Nashville. The two immediate payoffs are pretty obvious: lower costs on one hand, and closer proximity to the local Nissan factories on the other hand

But as Holman Jenkins of the Wall St. Journal points out in his July 5 column, the really big payoff of Ghosn’s move is that “it blew up a status quo that was showing signs of staleness.” Jenkins goes further and suggests that leaders the of wounded GM could learn something from Ghosn. Here’s what he says:

“GM moving itself from Detroit would be unthinkable, and that’s the problem. History, tradition, the importance to the local economy, and deep roots, blah, blah. Against that, it’s hard to put your finger on any quantifiable gain from moving the company’s HQ from Detroit, except that it would change everything. Thousands of managers would refuse to go. Entire departments and a corporate hierarchy would have to be reconstituted. Old office plans and job charts would be trashed. New ones would be designed from scratch.”

Would moving GM’s headquarters be the elixir that would solve the company’s colossal challenges? On its own, of course not. But I think it would put real teeth into the notion of “change”. It would inject urgency and speed into the “change process.” It would open the doors for transformations in how the business is conducted. It would open the doors for new blood, new thinking, new kinds of managers and employees. With a company as calcified as GM, it might be the move that actually breaks through the inert corporate cholesterol that is now strangling the organization despite (or perhaps, because of) the careful, cautious good intentions of its leaders.

As Jenkins points out, “most of us, in this sense, are too conservative for our own good…Radical steps are sometimes indicated in corporate pathology.”

There are many radical steps that we as leaders fail to pursue because we think they’re too painful or risky. The reality is that not pursuing them will often lead to even more pain and risk.

Tuesday, August 01, 2006

The Real Rationale for a (Ridiculous) Ford-GM Merger?

In my last blog (July 25), I described the stupidity of the trial-balloon idea being floated by so-called "brilliant thinkers": mainly, that GM can overcome its catastrophic problems by merging with a sick Ford. Read that blog; it’ll start the process of curing you of the idea that mega-mergers are the answers to life’s persistent problems.

One reader’s response to my blog was so insightful that I wanted to post it here, because it’s something that I’d overlooked. Here’s what he wrote me:

“The purpose of the Ford-GM merger would allow the C-Suite (my note: that’s the executive suite) to stay employed for a few years longer. It’s the job security of bringing additional chaos with the smokescreen of fixing the company. By upselling the 'potential' benefits to shareholders and analysts they can shift focus from the actual problems. A lot of minor inefficiencies can be spotted and fixed post merger to make the executives look like heroes; they make for a lot of bullet points on the annual report. This type of solution is the most likely for executives unwilling or unable to effect positive growth and true efficiencies.”

Well said! As I wrote back to this discerning reader, the ultimate tragedy of this approach towards “fixing” things is that once the executives look like heroes, they’ll exit the stage and retire with millions, leaving the inevitable huge mess for someone else to inherit.

In my upcoming book Break From the Pack, chapter 2 is called “How to Lose: Ten Compulsions Guaranteed to Keep You Mired in the Pack”. In the spirit of my reader’s comments above, let me draw a few sentences from “Compulsion #10: The Compulsion to Do Anything as Long as You’re Doing Something”:

(Many leaders respond to big, pressing problems) with manic bursts of action—any action, regardless of whether it’s coherent, purposeful, disciplined, or inspiring…..Such actions can be acquisitions, divestitures, “back-to-basics” initiatives, restructuring, downsizing, or fresh ad campaigns. It doesn’t matter whether there is any strategic logic, due diligence, or deep execution, as long as “actions” happen….Short term spikes in performance sometimes occur, but they’re not sustainable. Eventually, the chaos catches up.

Acquisitions can sometimes be of great value in building a firm’s competitive strength, but not when leaders initiate them primarily out of myopia, desperation or self-aggrandizement.